Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers NJAES Cooperative Extension
The 10% Solution takes the math out of saving. And, it makes good financial sense. Simply take your gross pay each period and “drop” the last digit. If monthly gross income is $2,000 per month, save $200. If family income is $60,000 each year, save $6,000 per year or $500 each month. To determine what you need to save, simply determine what 10% of your gross income is on an annual basis and the number of pay periods that you have available to save. For example, if your annual income is $52,000, the annual savings goal is $5,200 (10%) and the required amounts of savings are $100 weekly (52 paychecks), $200 bi-weekly (26 paychecks), $217 semi-monthly (24 paychecks), and $433 monthly (12 paychecks).
The Association for Financial Counseling and Planning Education® and its 800 members are promoting the 10% Solution – a five-year campaign designed to increase the savings rate of Americans to 10%. The percent of income saved by Americans dipped into negative territory in 2005 where it remains today. Simply put, Americans spend more than they earn, financing their spending by depleting savings funds and increasing credit obligations. Like Small Steps to Health and Wealth™, the 10% Solution recognizes that people of average means can build wealth gradually by making small, regular savings deposits.
What can saving do for you? Saving relieves personal stress and improves relationships. Many studies suggest that disagreement over finances is a major reason for marital strife and divorce. And for the unmarried, financial distress is a major factor in general dissatisfaction with life and unhappiness. Studies show that financial stress is not necessarily due to a lack of income but instead is due to unsustainable spending, saving, and investing patterns.
Saving reduces reliance on credit and can save thousands of dollars in interest. The percentage of disposable income used to pay debts is still near record highs. The American Bankers Association reported in 2005 that 43 percent of consumers carry balances each month on their credit cards. Many Americans owe $2,000 or more on their credit card balances, resulting in $45 in interest each and every month at a 15% annual percentage rate (APR) of interest.
Saving helps fund a comfortable retirement. As employers continue to decrease or eliminate pension benefits, private saving is the only remedy for this malady. Social Security benefits will not – nor were they ever intended to -- provide enough income for a sustainable retirement. Saving also increases confidence and the likelihood of getting out of poverty. Persons with even small amounts of savings are more likely to continue saving – even after depleting their savings to zero to meet an emergency.
Saving is habit forming. If saving 10% of your gross income is too daunting, start with 5%. Or 3%. Even small amounts of saving quickly add up. Will 10% of your income be the exact amount that you need to fund future financial goals such as retirement? Probably not, but it’s a great start. To get a more accurate estimate of what you need to save to achieve a specific financial goal, consider using an online financial calculator, such as the American Savings Education Council’s Ballpark Estimate retirement savings calculator at www.asec.org, or hiring a financial advisor to assist you with financial decisions.
Where should your savings go? Consider putting one-half into a retirement plan – 401(k) or (403(b) plan at work, or a traditional IRA or Roth IRA. Save one-third for emergencies – in a savings or money market account. These funds can help pay for unexpected household or auto repairs, medical deductibles, or other unplanned expenditures. Place the remainder (about 17%) in a savings account to fund future goals such as a vacation, roof repairs, or college education.
FAQs
Either way, take your gross earnings—the amount before taxes or other deductions are withheld—and multiply that number by 0.10. (This is the same as dividing by 10.) For example, if your biweekly paycheck has gross earnings of $1,350, that means you would set aside $135 for savings from each paycheck.
Is saving 10% of salary good? ›
According to this rule, you must save 10% of your income in order to live comfortably during retirement. The truth is that—unless you plan to go abroad after ceasing to work full-time, you will need a substantial nest egg. And saving 10% is probably not enough.
What is the 10 percent of salary? ›
Saving 10% of your paycheck (even after taxes) is a great place to start. Especially if you're just beginning your savings journey or if you aren't making enough money to save a higher percentage.
How to save 10% of your paycheck? ›
The 10% Solution takes the math out of saving. And, it makes good financial sense. Simply take your gross pay each period and “drop” the last digit. If monthly gross income is $2,000 per month, save $200.
What does 10 percent solution mean? ›
10 percent solution means the solute is only 10% in the solution, so taking the volume of the solvent 100 ml then the mass of the solute will be either 10 gram or 10 ml.
How can I calculate 10%? ›
While 10 percent of any amount is the amount multiplied by 0.1, an easier way to calculate 10 percent is to divide the amount by 10. So, 10 percent of $18.40, divided by 10, equates to $1.84.
How much to save on an 80k salary? ›
The 4% Rule
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04).
How did I stop living paycheck to paycheck and saved my first $1000? ›
7 Steps to Stop Living Paycheck to Paycheck
- Start by Creating a Budget. If you don't already have a budget, now is the perfect time to create one! ...
- Cut Expenses and Increase Income. ...
- Build an Emergency Fund. ...
- Stop Accruing Debt. ...
- Open a High-Yield Savings Account. ...
- Join a Credit Union. ...
- Use Free Financial Wellness Resources.
How much to save on a 100k salary? ›
What percentage of my income should go to savings?
Yearly Salary for single individual | Approximate take-home pay (according to tax brackets4) | Annual Savings Goal |
---|
$35,000 | $29,750 | $5,950 |
$50,000 | $37,500 | $7,500 |
$75,000 | $56,250 | $11,250 |
$100,000 | $72,000 | $14,400 |
What salary puts you in the 10%? ›
For example, California's top 10% income threshold is $341,276 per year, reflecting the high costs in areas like the San Francisco Bay Area.
To calculate a 10 percent hike in salary, users will have to multiply the current salary by 1.10. This increases the salary by 10%. To calculate a 15 percent hike in salary, users will have to multiply the current salary by 1.15. This increases the salary by 15%.
What is giving 10 percent of your income? ›
What Is Tithing? A tithe is a portion (10%) of your income given to your local church. Because the custom of tithing is biblical, many Christians and Jews practice it as part of their faith.
Is saving $600 a month good? ›
But when it comes to what they need to be saving, it depends. So, if we're starting with a 30-year-old, they should be probably saving close to $580, $600, at least, a month. And that's if they're going to earn a high rate of return. So it depends on how aggressive and risky that they're looking to be.
Is saving $1000 a month good? ›
Saving $1,000 per month can be a good sign, as it means you're setting aside money for emergencies and long-term goals. However, if you're ignoring high-interest debt to meet your savings goals, you might want to switch gears and focus on paying off debt first.
How much money do I need to invest to make $3,000 a month? ›
If the average dividend yield of your portfolio is 4%, you'd need a substantial investment to generate $3,000 per month. To be precise, you'd need an investment of $900,000. This is calculated as follows: $3,000 X 12 months = $36,000 per year.
How do you take 10% out of money? ›
First, we convert the 10 percent into a decimal, which gives us 0.1. Second, we multiply 0.1 by the original purchase price of $359. So $359 * 0.1 = $35.90. Joey will save $35.90 off the original purchase price of the watch.
How do you calculate 10% off money? ›
How much is 10 percent off?
- Divide your number by 10.
- Subtract this new number from your original number.
- You've taken 10 percent off!
How do you calculate percentage of paycheck? ›
After you have both numbers, divide your take-home pay by your gross pay, and then multiply the result by 100. This gives you your take-home pay as a percentage of gross pay per pay period. It's also worth mentioning that this percentage can vary throughout the year if you receive any bonuses or work any overtime.